#Publicis reported Q2 / 1H numbers this morning. The key takeaway is another strong set of results and an upgrade to FY guidance. Thoughts on their numbers / commentary:
1. Q2 organic revenue growth was +5.6%, accelerating from 5.3% in Q1. Growth was maintained across all regions (North America +5.2%, Europe +4.2%, Asia-Pac +7.7%). By countries, the US was +5.3%, the UK broadly stable but China saw growth accelerate to +10.5% helped by media wins, which suggest Publicis is gaining share vs market leader Group M;
2. By discipline, Publicis does not provide a breakdown of revenues but, looking at the geographical comments, Media seems to be leading the charge with it being mentioned as the key driver for growth in virtually all regions, with the US and UK media businesses (and others) growing double digit. Epsilon grew mid-single digits in the US. Sapient varied by performance - a slight decline in the US but growth in several other regions. Creative was broadly flat in the US but up double digits in the UK and positive commentary in the likes of Central and Eastern Europe and Latin America;
3. The group upgraded FY organic revenue growth guidance (to between +5% and +6% from +4% to +5%) referring to the +5% as a floor and the +6% as a "stretch". Given Publicis's consistent track record over the past several years of beating guidance, it is fair to say management will have a high degree of confidence in the guidance. However, 1H organic revenue growth was +5.4% in total so not too much should be expected of a beat against the upper end unless Q4 turns out to a very strong quarter. Operating margin targets were kept at 18% (1H 17.3%);
4. Publicis mentioned that it was outperforming peers by 400bps (based on market estimates for the agency groups) and there is no sign this outperformance is changing (it is worth noting that #Omnicom, which reported Q2 numbers on Tuesday, had a strong stated Q2 organic revenue growth of +5.2% but, unlike other groups, this does not strip out proprietary trading effects). There is no sign this outperformance will reverse any time soon and, given the outperformance of Publicis' share price vs peers, investors think the same (over the past five years, Publicis' share price has risen c. +135% with the next best performer Interpublic rising around 35%);
5. The elephant in the room is this. Is Publicis's outperformance structural i.e. likely to be maintained, or cyclical i.e. others will catch up. Industry veterans would argue that the cycle of outperformance always turns but I think there is a strong case for arguing it is structural. Media is probably the biggest part of the agency landscape where scale matters most (because it provides pricing benefits) and the fact that Media is performing so well for Publicis - and the evidence suggests the combination of Media + Epsilon for data is working well - points to the structural case.
As usual, this is not investment advice.
#agencies
Forrester’s global agency analyst
1wHolden Bale I suppose it’s an accomplishment 😉